Shortly before the end of 2012, the Michigan Supreme Court issued its first opinion in a calendar case on Michigan's foreclosure statute in nearly 20 years. In Kim v JPMorgan Chase Bank, N.A., --- Mich ----; --- NW2d ---- (Mich Dec 21, 2012) (No 144690), the Court was unanimous in upholding long-standing Michigan case law stating that deficiencies in the foreclosure process make a foreclosure sale voidable, not void ab initio.
The difference is subtle, but significant. Voidable sales may be set aside, but only if the mortgagor can show it was prejudiced by any alleged deficiencies. Sales that are void ab initio are simply invalid, whether the mortgagor was harmed or not – and even if the foreclosed property has since been sold to one or more innocent purchasers. The Kim decision comes in response to a growing number of Michigan Court of Appeals decisions following the Court of Appeals’ 2007 ruling in Davenport v HSBC Bank USA, which held that at least certain types of deficiencies made a foreclosure sale void ab initio. 275 Mich App 344; 739 NW2d 383 (2007). By rejecting Davenport and its progeny, Kim gives a great deal more certainty to foreclosing mortgagees, purchasers of foreclosed property and the title companies insuring those sales alike.
Despite the full Michigan Supreme Court agreeing on this point, the Court split 4-3 on the actual merits of the Kim case. At issue was whether a transfer by the FDIC of a closed bank’s assets was a transfer by operation of law, or a more typical asset sale. Justice Marilyn Kelly, writing for the majority, explained that this transfer was a sale of assets and not a transfer by operation of law. Because it was not a transfer by operation of law, the majority held that the mortgagee of the Kim’s property was unquestionably required to record an assignment before the sheriff’s sale under MCL 600.3204(3). Since the mortgagee failed to do so, the sheriff’s sale is voidable. The Court remanded for determination of whether the mortgagor was prejudiced.